Mortgage

For most people, a mortgage is the biggest loan they'll ever take on. It's what makes homeownership possible without paying the full price upfront—you put down a fraction of the cost and pay off the rest (plus interest) over 15 to 30 years. The property serves as collateral, which is why lenders can offer relatively low rates compared to unsecured debt.

The two main flavors are fixed-rate and adjustable-rate (ARM). A fixed-rate mortgage locks in the same interest rate for the entire term—your payment never changes, which makes budgeting easy. An ARM starts with a lower rate that adjusts periodically based on market conditions—great at first, but your payment could climb later.

Your monthly mortgage payment has four parts, often called PITI: Principal (paying down the loan balance), Interest (the cost of borrowing), Taxes (property taxes collected into escrow), and Insurance (homeowner's insurance, also escrowed). If your down payment was less than 20%, you'll also pay PMI—private mortgage insurance—on top of that.

Here's something that surprises a lot of first-time buyers: early on, most of your payment goes toward interest, not principal. On a 30-year, $400,000 mortgage at 7%, your first payment might be roughly $1,900 in interest and just $762 toward principal. By year 20, those numbers flip—around $900 in interest and $1,762 in principal. This gradual shift is called amortization.

Even small rate differences matter at this scale. A 0.5% lower rate on a large mortgage can save you tens of thousands over the loan's life, which is why shopping around with multiple lenders is worth the effort.